Argentina’s currency crash hits shale development

When Argentina’s currency plummeted by 50% this year, the oil sector started to worry about a slowdown in the development of Vaca Muerta, the country’s biggest shale play. The peso’s crash led the central bank to hike the benchmark interest rate to 40% from 27.25%, pushing up corporate borrowing rates to as much as 70%. The result? The 2,000 small and midsize services companies in Vaca Muerta are facing hard times. “There are not many companies that can handle such a high financing cost,” said Federico Mac Dougall, a director at First Corporate Finance Advisors. The currency crisis, fueled largely by capital flight from emerging markets after a hike in US interest rates in April, comes as field operators seek to ramp up the development of Vaca Muerta. Argentina’s Pampa Energia recently said it will lead a $520 million, five-year pilot project in the play with ExxonMobil and Total. “There are a ton of opportunities for services companies because the operators are demanding more and more all the time,” Mac Dougall said. “But the service companies don’t have the capital and they are worried about losing their current contracts and those that are to come.” Many of these companies borrowed… continue reading